We have two accounts that make up forty percent of our revenue, and we know this customer concentration will drag down our valuation. How do we use our EOS quarterly Rocks and V/TO to systematically dilute this concentration risk over the next twelve months so we do not get slaughtered on our multiple?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the most severe valuation killers because it introduces catastrophic risk to a buyer. If forty percent of your revenue rests on two accounts, a buyer knows that losing one of them post-close could destroy their investment. To prevent a massive discount or an aggressive escrow holdback, you must actively dilute this concentration before entering the market. We recommend using your V/TO to set a clear, long-term target for account diversification. This should be translated into specific quarterly Rocks for your sales and marketing teams. For example, your target might be to secure five new mid-market accounts that each represent less than five percent of your total revenue. Simultaneously, you must remove yourself and your key leaders as the primary points of contact for those massive accounts. Use your Accountability Chart to transition the client relationship management to account managers who handle the daily operations. If the buyer sees that your largest clients are deeply loyal to your company's processes and delivery team rather than to you personally, they will feel much more secure. Documenting these client management processes in your business manual will prove that the revenue is safe, neutralizing the concentration discount.